Issues Raised by SEC & FINRA Joint Statement

  • Importance of the Customer Protection Rule
  • Noncustodial Broker Dealer Models for Digital Asset Securities
  • Considerations for Broker Dealer Custody of Digital Asset Securities
  • The Books and Records and Financial Reporting Rules
  • Control Location Applications
Issues Raised by SEC & FINRA Joint Statement

Good Corporate Governance Requires Issuers to Maintain Safeguards over Issued Securities

The duties of a transfer agent and registrar may be performed by an issuer in-house. However, in most corporations with widely held share ownership, keeping track of stock issuance and ownership is a considerable task in this increasingly complex regulatory environment. As a result, the vast majority of issuing companies outsource this function to a commercial transfer agent.

Transfer agents maintain a record of ownership, including contact information, of an issuer's registered shareholders. Transfer agents' responsibilities also include the transfer, issuance, and cancellation of an issuer's shares. One of a transfer agent's primary duties is assisting registered shareholders and fulfilling their requests for:

- Transferring their shares

- Reversing unauthorized transfers

- Replacing lost securities

The Vertalo Direct Custody Wallets, V Tokens, and Registry support the role of a transfer agent to digital assets securities, through the establishment of a “transfer controller” role. All transfer controller activity is identifiable as such in the traditional ledger and blockchain record of transfers, providing a complete audit trail. The transfer controller role resembles a traditional transfer agent role.

Vertalo’s comprehensive technology set helps protect investors against loss or theft of assets, facilitates robust management of those assets, and supports custody in keeping with existing industry practices for traditional investment securities.

Without a "Good Control Location," private issuers open themselves up to regulatory risk.

Customer Protection Rule

Vertalo’s Direct Custody Wallet provides a mechanism compatible with existing practices for broker-dealer custody in keeping with the SEC’s Customer Protection Rule. An issuer or transfer agent that has the transfer controller role for a Vertalo V Token can make all transfers necessary to protect investors.

The designated transfer agent is tasked with the reversal of any mistaken, unauthorized or fraudulent transactions similar to a ‘cancel and correct’. A transfer agent can also perform transfers to fulfill state escheatment requirements, among other use cases.

The transfer controller role gives the broker-dealer or transfer agent full control over the digital asset securities including 1) the destruction and replacement of stolen digital asset securities and the issuance of replacements to the rightful owner and 2) the use of the Transfer Controller Role to claw back any digital asset security tokens that have been incorrectly transferred.

As it relates to control location:

  • Vertalo, in its role as the transfer agent, controls the transfer of securities
  • Vertalo, in its role as the transfer agent, has the ability to reverse or cancel mistaken or unauthorized transactions
  • Vertalo will maintain a traditional single master security holder list but also publish as a courtesy the ownership record using distributed ledger technology
  • If a broker-dealer fails, a SIPA trustee can step into the shoes of the broker-dealer to dispose of assets in accordance with SIPA

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